February 15, 2017

Qualities NIN.VC (or VCs) Looks for in a Company


Venture Capitalists are known to invest in unicorns that prove to be home run for their LPs, but now that crowdfunding is turning everyone into a VC, how does one identify those winners? While there is no secret recipe for success, here are a few things NIN.VC looks for while investing:

1. Disruptive Technology
A disruptive technology is an innovation that changes the way an existing industry functions and also helps create a new market and value network, displacing an earlier technology or a way of doing business. E.g. 3D printing has been used for rapid prototyping and is being applied in a number of industries today, including manufacturing, automotive, consumer, aerospace, defense, and especially healthcare. As the accuracy and materials market have improved, the medical space shows great potential for this technology. There are about 123,851 people currently on the organ recipient list in United States; that list grows on an average of 12% annually. On the other hand, organ donor increases about 1-2%, and 21 people die every day because they cannot find a right organ. What if 3D printing tissues can help save some of those lives?

Every sector at some point is up for disruption. E.g. Traditional TV has been on a decline for the past few years, because the consumer behavior patterns are changing. People are spending more time on their personal devices like phone, tablets, & PCs. An average American spends about 3 hours everyday on their personal devices, and this is the first time, the time spend on personal devices have surpassed time spent watching TV. So what does this mean for the Ad Tech Industry? The current digital advertising market is $75 billion and traditional TV advertising is $112 billion, and as the consumer migrates to watching more digital TV or on demand content, this $112 billion will migrate to digital advertising, which is a huge opportunity and disruption for the ad tech industry. 

2. Revenue Model
Great ideas / technology needs to be backed by a solid revenue model in order to attract customers as well as attain profitability for the company to be an attractive investment opportunity for a VC.

3. Industry Analysis & Competitive Landscape
A startup needs an ecosystem to thrive upon, thus it is very important for a company to understand the market dynamics, its impact on their industry, product, and also have a good understanding of the competitive landscape in order to achieve long term success. A disruptive technology needs to scale and a through analysis helps gage those risk and rewards.

4. Entrepreneur / Team
CEO is the captain of the ship; and at NIN.VC we start with an entrepreneur because entrepreneurs build companies and not the other way around. Some of the qualities VCs look for in an entrepreneur are ability to dream big with ideas that scale, certain personality traits and work ethics like being focused, disciplined, and hard working. It’s important to have industry expertise and knowledge or surround yourself with people that compliment. However, flexibility and choices an entrepreneur / the team makes determines the future of the company.

5. Execution Strategy
An amazing entrepreneur with a disruptive technology, a solid revenue model, and good understanding of the competitive landscape goes to vain, if the company does not communicate effectively or has a good execution strategy.

February 5, 2017

Startup Crowdfunding Decoded


Startup Crowdfunding is the practice of funding a project at the angle / seed stage by raising contributions from a large number of people, typically via the Internet. Since 2014 the crowdfunding industry has grown from $16 billion to an estimated $34 billion in 2015 and is doubling or more every year, and according to the World Bank estimates, crowdfunding will have a global market of $96 billion by 2025 - 1.8 times today’s global venture capital industry.

Crowdfunding is spread across several types of funding models including rewards, donation, equity, and debt / lending. The two most popular types of crowdfunding methods are Reward and Equity. For rewards based crowdfunding, entrepreneurs pre-sell a product or service to launch a business, and some times even in return for gifts or thank you notes. For equity crowdfunding, the backer receives share of a company, usually in exchange of the money pledged.

For NIN Ventures (or NIN.VC), it would be limited partner interest in the NIN Ventures Technology (QP) Fund. NIN.VC is a unique and first of its kind crowdfunded technology venture capital fund to be raised under rule 506 (c) of the US Securities Act. NIN.VC invests in early / growth stage (Series A & B) 3D printing, the 4th industrial revolution, cloud computing, virtual reality, financial services, education software, and other disruptive technology companies. 

Why should people be interested in crowdfunding venture capital?

Yale is currently the best performing endowment fund in the United States. Since 2008 to 2015, Yale has increased its asset allocation in Private Equity / Venture Capital from 20.2% to 33.0%, out of which 16.3% is venture capital compared to 13.7% in 2014. In general, most people have a three dimensional portfolio (i.e. stocks, bonds, and money market), but if you look at Harvard and Yale’s portfolio, they a take a long-term approach and invest in alternatives like venture capital. Historically, if you look at USVC Index and S&P 500, USVC Index tends to outperform the S&P 500. And not only that, they have an inverse relationship. This type of investment strategy allows them to achieve true diversification and also helps mitigate the risk involved in having only a stock-bond portfolio.

Most people are indirectly invested in venture funds via a pension fund or any other investment vehicle, crowdfunding allows them to directly invest in a fund of their choice, and by eliminating the middle man i.e. the pension fund and their management fee, allows them to generate higher returns.

How is NIN.VC different and / or better than crowdfunding portals and traditional venture capital funds?

The 2008 Financial Meltdown led to a liquidity crises for companies, entrepreneurs, LPs, and VCs. Fewer IPOs means no exits for VCs, no returns for LPs, and as a result venture funds were on a decline. No new funding means less startup funding, low employment, and slow economic growth. To avoid this, the JOBS Act was introduced in 2012, which enables companies to crowdfund from accredited (and now even non-accredited investors).

However, there is a major flaw and that is what NIN.VC is solving. I come from an entrepreneurial family so I can speak on their behalf. Entrepreneurs are brave and courageous bunch that are determined to change the way an existing industry functions. On that journey they need lot more than just financing. They need guidance or domain expertise, help with PR/marketing, recruiting, viable exit strategy, more often follow up financing, etc., which crowdfunding portals are not able to support.

On the other hand crowdfunding exposed investors to a whole new asset class, which the normal population never had the knowledge or expertise to invest in. About 90% of startups fail; and with the shrinking number of startups that receive follow on Series A funding and dwindling number that manage to achieve an exit, and a low minimum investment like $1,000 which does not give a say or a board seat, puts investors at high degree of risk.

Here are some of the other differences between direct investing in a company using a Crowdfunding portal and the NIN Ventures Technology (QP) Fund.

For detailed explanation on Company vs. Fund investing visit our earlier blog post: Crowdfunding Matrix.

At NIN.VC we solved all of those issues. NIN.VC provides diversification, we take board seat on all our investments and lend the necessary support that an entrepreneur needs to build a business, like they would get at a traditional venture capital fund. And the most IMPORTANT part that investors cares about is the ability to direct invest and enjoy direct returns, which is not the case with a traditional venture capital fund.

NIN.VC has the best of both worlds. We’re a hybrid between a traditional venture capital fund and a crowdfunding portal. 

Who can invest in the NIN Ventures Technology (QP) Fund?
NIN Ventures Technology (QP) Fund is available to accredited investors for a minimum amount of $100,000 using multiple investment options like self-directed IRAs, defined benefit plan, digital currencies (E.g. Bitcoin, Litecoin, Dogecoin), or a regular checking / savings account.

An accredited investor is an individual with an income of more than $200,000 per year, or a joint income of $300,000, in each of the last two years and expect to reasonably maintain the same level of income OR have a net worth exceeding $1 million, either individually or jointly with his or her spouse, excluding the primary residence, qualifies as an accredited investor.

Recently, the SEC approved Title III JOBS Act, Equity Crowdfunding for non-accredited investors, which allows any U.S. citizen, regardless of income, to make direct investments via a crowdfunding portal. However, investment in a fund like ours is still limited to accredited investors. Given funds are a less riskier asset class compared to crowdfunding in companies, perhaps it’s time to revisit their investor eligibility and alter the definition of an accredited investor, in a way that it also allows funds to grow bigger in size.

What are some of the other concerns with crowdfunding?
One of the major concerns with crowdfunding is education both for investors and the press in general. When investing in public company stocks, investors have stock estimates and research reports from various different analysts, which is not the case with private company investing. More startup / technology coverage by media outlets will create investor awareness on this topic. However, journalists should be required to attain a license or certification in order to do so.

At NIN.VC we put a lot of emphasis on education and another feature that is unique to NIN.VC is transparency. Investors can attend our monthly calls, check our social media e.g. Facebook, Twitter, etc. for more recent activities at the firm.